Overstepping Boundaries (The Hill)

Headlines across the globe are clear: The world faces serious economic volatility. That’s making it difficult for U.S. companies, particularly manufacturers, to sell more products abroad and hire new workers at home. Every time it looks like we’ve turned a corner, we hit a new stumbling block. Just last week, for example, the Organization for Economic Co-operation and Development (OECD) recommended a new set of avoidable business challenges, all in the name of fair global taxation.

The OECD—a group of 34 countries including the United States—was set up more than 50 years ago as a forum for members to develop policies to encourage economic growth. In 2012, representatives from the G-20 asked the OECD to develop a comprehensive approach to address aggressive tax planning that resulted in inappropriate corporate tax avoidance.

Regrettably, the newly released final reports—the Base Erosion and Profit Shifting (BEPS) project—include recommended changes to tax policy, taxpayer reporting requirements and information sharing among governments and go well beyond that original objective. In particular, the recommended changes to information reporting and sharing would impose substantial and unnecessary compliance costs on manufacturers and, in some cases, force disclosure of sensitive, confidential U.S. taxpayer information.

New country-by-country reports on a company’s financial and tax data that companies will file with their own country will impose a significant, additional administrative burden on companies. But at least this requirement, if implemented, would be submitted to foreign countries under bilateral treaties and information exchange agreements and thus have protections to ensure confidentiality, consistency and appropriate use of the information by foreign countries.

Unfortunately, this would not be the case with a “master file” that could be required directly by any country where a company does business. The master file would include organizational charts, consolidated financial statements and analyses of profit drivers, supply chains, intangibles and financing. In short, it’s a comprehensive roadmap of every aspect of a company’s worldwide business.

The OECD claims the master file is intended to provide “a high-level overview in order to place the [company’s] transfer pricing practices in their global economic, legal, financial and tax context.” In reality, however, the master file is far more than an overview and, in many cases, includes sensitive, confidential and proprietary information about a company’s global operations that is unrelated to actual taxpayer activities in a particular country.

Perhaps the most alarming aspect of this proposal is the total lack of safeguards for protecting the sensitive information in the master file. In this case, U.S. companies would be at the mercy of foreign governments.

Competitiveness concerns are also very real. Information about global supply chains, for example, would be of high value to a company’s competitors if disclosed. For private companies, requirements to include a global organizational chart and consolidated financial statements would constitute an unprecedented level of disclosure to foreign governments. At a time of corporate espionage and high-profile data hacks, why would we put our businesses, especially those manufacturing companies designing new American products, at risk?

The United States should hold off on implementing the OECD’s proposals until Congress can fully vet them and assess their potential impact on American businesses and the economy. If implementation does move forward, the Treasury Department should do all it can to ensure U.S. companies are not required to disclose sensitive, proprietary business information.

To shore up the volatile global economy, the world needs a fair and transparent tax climate that boosts standards of living and economic growth everywhere—not misguided regulations that stifle manufacturing innovation, risk privacy and threaten competitiveness. The OECD’s intentions may have been good, but some recommendations, if implemented, are dangerous.

Coleman is vice president of tax and domestic economic policy at the National Association of Manufacturers.